CEO transitions have always been challenging, but never more so than in today’s environment. As a board governance, leadership consulting and search firm, Russell Reynolds Associates is asked regularly to conduct CEO searches and support long-term CEO succession planning. We advise our clients not to forget about transition planning as a distinct process that needs attention and planning. We use succession planning and transition planning to describe different phases of a leadership transfer. Succession planning is first and includes the steps related to defining the success criteria, as well as the critical work related to identifying, assessing and developing potential CEO candidates. Transition planning encompasses the decision on which candidate to select (while it may not yet be formally announced) and the steps related to role transfer from the outgoing to the incoming CEO.
To gain a sharper sense of the challenge posed by CEO successions and transitions, as well as the risk involved, Russell Reynolds reviewed the member companies of the S&P 500 (as of August 1, 2018) and analyzed their CEO tenure and turnover rates between Jan. 1, 2003, and Dec. 31, 2015. Across these 500 companies, there were 688 CEO transitions over that 12-year period, with 40 percent of the firms experiencing two or more CEO transitions.
While the average departing S&P 500 CEO had a tenure of 5.9 years during that period, a surprising number of CEOs departed quickly: Fully 13.1 percent of new CEOs leave in under three years, with more than half of them leaving in less than two. Given the cost and investment in CEO appointments, these are expensive misses. When looking at just external CEO appointments, the numbers jump to a 17.2 percent departure rate in three years and 11.0 percent within two years—a notable rate of failure. These are not untested leaders or unsophisticated enterprises. These appointments were the product of the succession and onboarding processes used by some of the world’s largest and most successful companies. Yet, almost one in seven CEOs failed to be around for the third anniversary of their appointment.